The coalition agreement between the Conservatives and the Liberal Democrats has now been published. This document outlines the main joint policies which were agreed during negotiations prior to the formation of the coalition government. This document has been studied in-depth by PCG who have highlighted the key points relevant to contractors. This is based on the agreement published on 13th May. The full, finalized coalition document has still to be published.

First of all, PCG highlighted that the “main burden of deficit reduction” will be “borne by reduced spending rather than increased taxation”. It is also important to note that the new coalition government is only partly planning to proceed with the increases in NICs set in motion by Labour with rises only in the Employer’s National Insurance Threshold.

As already stated, the full coalition agreement has still to be published and signed, however, once this process is complete there will be an emergency budget within 50 days. It is also likely that, in some instances, backdated demands for business rates may be cancelled. However, a full spending review will take place. It is expected that a number of IT projects will be scaled back or cancelled altogether as part of this process. Many contractors are likely to be affected, particularly those working on projects such as the ID Card Scheme.

On a more positive note, freelancers who pay themselves via a limited company should see a “substantial increase in the personal allowance from April 2011”. The Liberal Democrats had promised an increase of £10,000 in their manifesto which will not be met in this planned increase for 2011 but it remains a “long term policy objective” which is likely to mean an incremental increase on an annual basis.

Furthermore, a transferable married couple’s tax allowance could still be a possibility. The coalition also intends to tax any non-business capital gains at the same or similar rates as income tax. While this has been alarming to some freelancers, there has been an assurance that “generous exemptions for entrepreneurial business activities” will exist.

Finally, we can expect this government to continue to tackle tax avoidance and to cap immigration by non-EU nationals. They have also stated their intention to “examine the balance of the EU’s existing competencies”. Time will tell whether or not this has an impact on the planned AWD.

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